Day order
An order which, if not executed during the trading session the day it is entered, automatically expires at the end of the session. All orders are assumed to be day orders unless specified otherwise.
Day-trader
Futures or options traders (often active on the trading floor) who usually initiate and offset position during a single trading session.
Dealer option
A put or call on a physical good written by a firm dealing in the underlying cash commodity. A dealer option does not originate on, nor is it subject to the rules of an exchange.
Debt instruments
1) Generally, legal IOUs created when one person borrows money from (becomes indebted to) another person; 2) Any commercial paper, bank CDs, bills, bonds, etc.; 3) A document evidencing a loan or debt. Debt instruments such as T-Bills and T-Bonds are traded on the CME and CBOT, respectively.
Deck
All orders in a floor broker’s possession that have not yet been executed.
Deep in-the-money
An option is “deep in-the money” when it is so far in-the-money that it is unlikely to go out-of-the-money prior to expiration. It is an arbitrary term and can be used to describe different options by different people.
Deep out-of-the-money
Used to describe an option that is unlikely to go into-the-money prior to expiration. An arbitrary term.
Default
Failure to meet a margin call or to make or take delivery. The failure to perform on a futures contract as required by exchange rules.
Deferred delivery
Futures trading in distant delivery months.
Deferred pricing
A method of pricing where a producer sells his commodity now and buys a futures contract to benefit from an expected price increase. Although some people call this hedging, the producer is actually speculating that he can make more money by selling the cash commodity and buying a futures contract than by storing the commodity and selling it later. (If the commodity has been sold, what could he be hedging against?)
Delivery
The transportation of a physical commodity (actuals or cash) to a specified destination in fulfillment of a futures contract.
Delivery month
The month during which a futures contract expires, and delivery is made on that contract.
Delivery notice
Notification of delivery by the clearinghouse to the buyer. Such notice is initiated by the seller in the form of a “Notice of Intention to Deliver.”
Delivery point
The location approved by an exchange for tendering and accepting goods deliverable according to the terms of a futures contract.
Delta
The correlation factor between a futures price fluctuation and the change in premium for the option on that futures contract. Delta changes from moment to moment as the option premium changes.
Demand
The desire to purchase economic goods or services (and the financial ability to do so) at the market price constitutes demand. When many purchasers demand a good at the market price, their combined purchasing power constitutes “demand.” As this combined demand increases or decreases, other things remaining constant, the price of the good tends to rise or fall.
Derivative
A financial instrument whose characteristics and value are based on the characteristics and value of another financial instrument or product.
Diagonal spread
Uses options with different expiration dates and different strike prices; for example, a trader might purchase a 26 December German Mark put and sell a 28 September German Mark put when the futures price is $.2600/DM.
Direct hedge
When the hedger has (or needs) the commodity (grade, etc.) specified for delivery in the futures contract, he is “direct hedging.” When he does not have the specified commodity, he is cross hedging.
Discount
1) Quality differences between those standards set for some futures contracts and the quality of the delivered goods. If inferior goods are tendered for delivery, they are graded below the standard, and a lesser amount is paid for them. They are sold at a discount; 2) Price differences between futures of different delivery months; 3) For short-term financial instruments, “discount” may be used to describe the way interest is paid. Short-term instruments are purchased at a price below the face value (discount). At maturity, the full face value is paid to the purchaser. The interest is imputed, rather than being paid as coupon interest during the term of the instrument; for example, if a T-Bill is purchased for $974,150, the price is quoted at 89.66, or a discount of 10.34% (100.00 – 89.66 = 10.34). At maturity, the holder receives $1,000,000.
Discount rate
The interest rate charged by the Federal Reserve to its member banks (banks which belong to the Federal Reserve System) for funds they borrow. This rate has a direct bearing on the interest rates banks charge their customers. When the discount rate is increased, the banks must raise the rates they charge to cover their increased cost of borrowing. Likewise, when the discount rate is lowered, banks are able to charge lower interest rates on their loans.
Discretionary accounts
An arrangement in which an account holder gives power of attorney to another person, usually his broker, to make decisions to buy or to sell without notifying the owner of the account. Discretionary accounts often are called “managed” or “controlled” accounts.
Downtrend
A channel of downward price movement.
